Laws and policies pave the way for LEDS investments: experience from Vietnam and Rwanda
Countries at the leading edge of LEDS action – such as Vietnam and Rwanda – are enacting many laws and policies to accelerate investment in low-emission development. Mairi Dupar reports from COP21 in Paris, France.
At an event organized by the Asia LEDS Platform and hosted by the Government of Vietnam at COP21 in Paris, delegates heard how Vietnam and Rwanda are passing national laws and financial regulations to encourage green investments by the private sector.
Green policy shift: experience from Vietnam
Dr Pham Hoang Mai explained that the Government of Vietnam has high aspirations for green growth, but has so far failed to mobilize enough resources. Meeting Vietnam’s green growth goals will require significant private investment, as well as government funding.
Dr Mai is Director General of the Department of Science, Education, Natural Resources and Environment in Vietnam’s Ministry of Planning and Investment and he co-Chairs the Asia LEDS Platform.
“Less than half – only 43% – of the priority actions in Vietnam’s Green Growth Action Plan are funded, and only 26% of total ODA programmes and projects support the Government of Vietnam’s green growth priorities,” Dr Mai said. This green finance gap encouraged the Government to develop a range of measures to tilt the balance in favour of eco-friendly investments.
“Vietnam’s experience in LEDS financing is that there is significant scope to create incentives to leverage the private sector and accelerate public-private partnerships,” he said. The Government has a three pronged approach, which includes strengthening policies, using ‘de-risking’ instruments (e.g. such as various forms of government-backed investment guarantees to reduce risks for the private sector), and building the technical capacity of businesses and investors.
Recent actions by the Government of Vietnam include:
- Passing a new public investment law in 2015 which Dr Mai said is aimed at ‘crowding in’ investment in green growth by enabling public-private partnerships;
- Launching a Climate Public Expenditure and Institutional Review (CPEIR) process in Vietnam – described by the United Nations Development Program (UNDP) as “a systematic qualitative and quantitative analysis of a country’s public expenditures and how they relate to climate change” (this excellent website has more information);
- Starting a process to track budget allocations and public expenditure according to sustainability criteria – this has been mapped out centrally and will roll out via line ministries and provincial governments in 2016;
- Releasing guidelines on green loans through the State Bank of Vietnam (see the Directive on Green Credit, March 2015);
- Beginning to track private climate finance flows into low-emission and environmentally-sustainable activities, with the help of the UNDP, so that the Government can spot missed opportunities and develop new incentives for green investment in the future.
Fossil fuel subsidies must go
Of course, facilitating green investment is not just about providing support for the ‘good stuff’, it’s also about withdrawing support for the ‘bad stuff’. The Government of Vietnam also has fossil fuel subsidies in its sights, according to Dr Mai – the Government will be removing subsidies for polluting activity and introducing fiscal policies such as green tariffs (e.g. lower taxes on environmentally sustainable goods and services). In 2014, UNDP released a report recommending that the Government of Vietnam cut back its subsidy programme for state-backed fossil fuel distributors, which amounted to billions of dollars in the previous ten years.
Green finance instruments to attract the private sector: experience from Rwanda
Rwanda is also taking an economy-wide approach to LEDS, said Bright Ntare, a Coordinator of the Government of Rwanda’s environment and climate change fund (known by its French acronym FONERWA).
Rwanda’s Green Growth and Climate Resilience Strategy runs until 2030 and includes 14 programs of action across sectors. Making progress calls for new measures to attract private investors, said Mr Ntare, echoing the Vietnamese experience.
The environment and climate fund has US$80 million at its disposal and early disbursements were targeted mostly at the public sector (e.g. local governments) and civil society. Increasingly, the fund’s managers are looking at the possibility of using small, strategic investments to attract larger sums of cash from the private sector.
Now the fund has put in place an innovation grant scheme to encourage private, low-carbon enterprise, and a credit line for green business activities at 4.5% below market rates. Mobilizing private investment for renewable energy has been tougher than expected, Mr Ntare said, so now the Government of Rwanda is “developing a viability fund for renewable energy that will make it profitable for the private sector to join.”
Countries seek to coordinate finance flows
On the international scene, the Green Climate Fund (GCF), first established under the UNFCCC in 2010, became fully operational and made its first funding decisions in the run-up to the Paris climate summit in October 2015. In Paris, Parties reiterated their commitment to ensuring that at least US$ 100 billion per year flows to developing countries by 2020 to assist them in meeting their climate mitigation and adaptation goals. It is expected that a significant proportion of this international climate finance (although by no means all) will be channelled by aid donors through the GCF.
At the Asia LEDS event, Cliff Polycarp, Manager of Country Operations, said the GCF had the potential to unlock vast amounts of capital from private investors – via its Private Sector Facility. According to the GCF’s website, this Facility “will contribute to shifting an estimated US$ 200 trillion of global financial assets towards low-emission and climate-resilient development”; the Facility is focusing on many of the confidence-building measures for private investors that Drs Mai and Ntare flagged at country level: taking on risks such as foreign exchange risks and building the climate-related knowledge and capacity of private businesses.
However, before the taps open any further to let international climate finance gush in, both Dr Mai of Vietnam and Mr Ntare of Rwanda stressed that national governments need the ability to coordinate international climate finance flows, to ensure their effectiveness.
“FONERWA (the Rwandan environment and climate fund) has enabled us to channel funds to stop overlapping efforts among donors,” said Mr Ntare. “It has stopped them channeling funds separately into the same thing. Coordinating resource mobilisation is a big advantage.”
Image: Vietnam, credit World Bank photo collection.